DeepSeek’s release of a new Artificial Intelligence chatbot has prompted the loss on the US stock market of $1trillion overnight, as investors lost confidence in Western dominance in the AI sector.
DeepSeek is an artificial intelligence company which develops open-source large language models. Based in Hangzhou, it is owned and solely funded by the Chinese hedge fund High-Flyer.
In April 2023, High-Flyer started an artificial general intelligence lab dedicated to researching and developing AI tools. In May 2023, with High-Flyer as one of the investors, the lab became its own company, DeepSeek.
The tech firm launched its AI chatbot, DeepSeek-R1, in January to compete with OpenAI, Google and Meta. It promises high performance using less advanced hardware.
Its recent model was developed for £4.8million, a fraction of the approximately £80million spent by competitors. It also requires 11 times fewer processing hours.
“DeepSeek shows that it is possible to develop powerful AI models that cost less”, said Vey-Sern Ling, managing director at Union Bancaire Privee.
DeepSeek’s bot claims to offer transparency by showing the reasoning behind answers but it has been claimed that the official API version of R1 uses censorship mechanisms for topics considered politically sensitive for the Chinese Government.
For example, the chatbot reportedly refuses to answer questions about the 1989 Tiananmen Square protests and massacre, the persecution of Uyghurs, or human rights in China.
Sometimes, it will generate an answer but delete it shortly afterwards and replace it with a message such as: “Sorry, that’s beyond my current scope. Let’s talk about something else.”
When tested by NBC, the chatbot described Taiwan, a self-ruling island democracy, as “an inalienable part of China’s territory”.
It stated: “We firmly oppose any form of ‘Taiwan independence’ separatist activities and are committed to achieving the complete reunification of the motherland through peaceful means.” Beijing’s position is that Taiwan is a breakaway region of China and has the goal to “reunify” it with the rest of the country.
The app has surged on the app store charts, surpassing ChatGPT today (January 27), and it has been downloaded nearly two million times.
DeepSeek-R1’s launch sent shockwaves through markets, particularly in the tech sector. The S&P 500 fell by 1.4%, and the tech-heavy Nasdaq by 2.3%. Meta and Google’s parent company Alphabet were also down.
Nvidia, the leading supplier of AI chips, whose stock more than doubled in each of the past two years, fell 12%. Competitors Marvell, Broadcom, Micron and TSMC all fell sharply, too. Oracle, Vertiv, Constellation, NuScale and other data centre companies tumbled.
Marc Andreessen, a supporter of President Donald Trump and tech investor, called DeepSeek “one of the most amazing and impressive breakthroughs I’ve ever seen,” on X (formerly Twitter).
This comes after Meta said it would spend upward of $65billion this year on AI development. The CEO of OpenAI said the industry would need trillions of dollars to develop the chips needed to power the electricity-hungry data centres that run the sector’s models.
“The bottom line is the US outperformance has been driven by tech and the lead that US companies have in AI,” said Keith Lerner, analyst at Truist.
“The DeepSeek model rollout is leading investors to question the lead that US companies have and how much is being spent and whether that spending will lead to profits (or overspending).”